Paul Manafort Trial Live Updates: Gates Explains How They Concealed Income

But the prosecution’s witnesses have also testified that they generally believed that Mr. Gates was carrying out Mr. Manafort’s wishes when he gave false information to Mr. Manafort’s accountants. Prosecutors claim that information helped Mr. Manafort evade taxes on tens of millions of dollars in income and fraudulently obtain millions of dollars in bank loans.

Mr. Gates never glanced on Monday at Mr. Manafort, who glared in his direction. Asked whether they were involved in criminal activity together, Mr. Gates responded, “Yes.”

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Paul Manafort’s Trail of Scandals

President Trump’s former campaign chairman Paul Manafort has been accused of attempting to tamper with witnesses in his federal tax and money laundering case. But this isn’t Mr. Manafort’s first public scandal.

By YOUSUR AL-HLOU and SARAH STEIN KERR on Publish Date October 30, 2017.

Hiding income to avoid taxes

Mr. Gates described how he helped Mr. Manafort conceal the amount of taxes he owed. According to Mr. Gates, Mr. Manafort preferred to report income as loans. This, Mr. Gates said, “enabled Mr. Manafort to reduce his overall tax liability.”

In one instance, Mr. Gates disclosed that they had received money from an oligarch and politician from Ukraine, Serhiy Lyovochkin. Mr. Manafort instructed his bookkeeper to classify it as a loan for tax purposes, though Mr. Gates admitted in court that it was not one and Mr. Manafort had never received a loan from Mr. Lyovochkin.

Mr. Gates admitted that at Mr. Manafort’s behest, they later created a loan agreement for Mr. Lyovochkin’s payment, though no loan existed.

Mr. Manafort disliked paying a lot of taxes, Mr. Gates said.

How their scheme worked

When one of the defense lawyers tried to suggest to Mr. Manafort’s tax accountant Monday that Mr. Gates had kept Mr. Manafort in the dark about his own finances, the accountant, Cynthia Laporta, pushed back.

“In most instances, it was clear that Mr. Manafort was aware what was going on,” she testified.

Mr. Gates’s statements reinforced that picture. He said that Mr. Manafort knew it was illegal not to report his foreign bank accounts to the Treasury Department but asked Mr. Gates to help him deceive his accountants so he could conceal income and pay less in taxes.

He said that some of Mr. Manafort’s income was disguised as loans from 15 shell companies that Mr. Manafort controlled, most of them in Cyprus.

Four Ukrainian oligarchs funneled money to Mr. Manafort’s accounts from their own shell companies in Cyprus, Mr. Gates testified. Once that income dried up, the government alleges, Mr. Manafort, with Mr. Gates’s help, falsified financial records so he could obtain bank loans to maintain his opulent lifestyle.

How the money moved

Mr. Gates’s testimony was a clinical examination of their business dealings as Greg D. Andres, the lead prosecutor, walked him through thick binders of financial documents and emails. Under questioning, Mr. Gates described how he and Mr. Manafort set up companies in Cyprus that concealed their identities and true ownership. Mr. Gates and Mr. Manafort used a Cypriot lawyer nicknamed “Dr. K.” to establish these companies.

Mr. Gates testified that the money they earned for the political consultancy work in Ukraine passed through bank accounts in Cyprus that they controlled. Mr. Gates also said that they sometimes characterized payments as loans to mask income. He described how they also transferred money from their Cypriot bank accounts to a bank in the Caribbean.

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more than $30 million in overseas income that he received to promote

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Viktor F. Yanukovych

pro-Russian former president of Ukraine

Robert S. Mueller III

special counsel

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was business partners with

was a campaign manager for

is expected to testify against

more than $30 million in overseas income that he received to promote

who also worked for the campaign of

Viktor F. Yanukovych

pro-Russian former president of Ukraine

Robert S. Mueller III

special counsel

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What they did for the money

The accusations against Mr. Manafort and Mr. Gates mostly stem from their work helping to elect Viktor F. Yanukovych, the former president of Ukraine, and other pro-Russia forces in Ukraine, and to secure business ventures with the oligarchs backing those politicians.

But on Tuesday, Mr. Gates testified that Mr. Manafort also was paid $4 million a year to help Mr. Yanukovych govern after he was elected president in 2010.

It is unclear how long the arrangement extended.

But the revelation could be notable, because, while Mr. Yanukovych ran on a platform of integrating with the European Union, while also maintaining good relations with Russia, he eventually pivoted toward Moscow, which helped prompt mass street protests that drove him from power in early 2014.

Mr. Gates also said that two American lobbying firms — the Podesta Group and Mercury Public Affairs — assisted with their policy consulting efforts. Mr. Mueller’s team has referred cases related to the firms’ work to federal investigators in the Southern District of New York.

Work extended to Ukraine’s current leader

Mr. Gates testified about how he and Mr. Manafort continued working in Ukraine after their primary client, Viktor F. Yanukovych, fled the country in February 2014.

The men signed a consulting contract with a new party called Opposition Bloc, which was created and funded partly by the same Russia-aligned oligarchs who backed Mr. Yanukovych, Mr. Gates said. The party won seats in an October 2014 parliamentary election; Mr. Gates testified that the work ended then.

He also revealed that he and Mr. Manafort assisted Petro Poroshenko, the current president of Ukraine, in an unpaid capacity. Dmytro Shymkiv, an official in Mr. Poroshenko’s administration, said in an email that he was “not aware” of any such relationship.

It would be notable if there had been any ties between Mr. Manafort and Mr. Poroshenko, because Mr. Poroshenko’s administration was criticized by Mr. Trump’s supporters for targeting Mr. Manafort during the presidential campaign in an effort to help Hillary Clinton.

Doctoring invoices

Mr. Gates detailed during his testimony how he doctored invoices for many of Mr. Manafort’s expenditures — including purchases from luxury men’s clothing boutiques, landscaping and home improvements — to ensure that the invoices were sent to the companies owned by Mr. Manafort and not Mr. Manafort himself.

The doctored invoices were first described by the vendors of the companies seeking payment last week, and Mr. Gates confirmed that he was responsible for editing the templates based on information Mr. Manafort gave him.

Why Gates is so important to the prosecutors’ case

The outcome of the trial, the first to be mounted by prosecutors working for the special counsel, Robert S. Mueller III, may well hinge on whether or not the jury finds Mr. Gates to be credible. The trial is separate from the special counsel’s investigation into Russia’s election interference, though Mr. Mueller’s mandate allows him to pursue any crimes uncovered as part of his inquiry.

Mr. Gates and Mr. Manafort worked together for roughly two decades, including on the Trump campaign. Mr. Manafort served as campaign chairman for three months before he was forced out in August 2016. Mr. Gates served as his deputy, then worked as the campaign’s liaison to the Republican National Committee after Mr. Manafort’s departure.

Mr. Gates, 46, admitted Monday that he was guilty of a long list of crimes, including stealing hundreds of thousands of dollars from Mr. Manafort’s accounts by inflating his business expenses. He said that while he was helping Mr. Manafort hide income to evade taxes, and later to inflate his income to obtain bank loans, he was doing essentially the same on his own behalf.

He said he concealed some of his own income in overseas accounts, evading taxes, and lied on applications for a mortgage and for a credit card. In exchange for his cooperation, the government in February agreed to dismiss 22 criminal charges stemming from his involvement in the scheme for which Mr. Manafort is now on trial.

Mr. Gates pleaded guilty to lying to federal authorities and conspiracy to commit fraud but has yet to be sentenced. Although sentencing guidelines recommend a prison term of up to six years, he testified that prosecutors have agreed not to object if his defense attorney argues that he should receive probation.

A newly named Manafort client

Mr. Gates revealed an intriguing new name as a client of Mr. Manafort at his trial on Tuesday — the Ukrainian oligarch Victor Pinchuk.

Mr. Pinchuk’s relationship with Mr. Trump has drawn the interest of the special counsel. In response to a subpoena for records, the Trump Organization provided details of a $150,000 donation in 2015 to Mr. Trump’s foundation in exchange for Mr. Trump doing a 20-minute video call into a conference organized by Mr. Pinchuk in Kiev that year.

Mr. Gates revealed that Mr. Pinchuk paid Mr. Manafort through a company called Plymouth Consultants Limited for what he described as a legal project. He did not provide details about how much was paid or when.

Mr. Pinchuk’s representatives did not respond to a request for comment. Mr. Pinchuk, a steel magnate who is generally regarded as pro-Western, has donated far more money — $13 million since 2006 — to the Clinton Foundation, according to its website.